Recently in Business Succession Category

Over the past few months there has been a surge in awareness efforts by agricultural publications around the need for farm families to take estate planning seriously. For example, late last week Agri-View published an article re-emphasizing the need for families to get serious about their succession planning if they would like to preserve their farm for generations to come. Our New York estate planning lawyer appreciates that the principles outlined in the article can be applied to contexts outside of farm families and are apt for all families with small businesses which may wither without proper preparation for transitioning from one generation to the next.

The article reminds readers that a succession plan is not the same thing as an estate plan. The estate plan is best viewed as one part of the process to prepare for business transitioning. The overall succession plan in not a one-time event--it is a gradual process that is completed with consultation with a variety of professionals, including estate planning lawyers. The estate planning component of the process will strategize ways to transfer assets to ensure tax savings and a smooth transition of property and responsibilities to younger generations.

Getting legal documents in place is just the beginning. In addition, the succession planning process will also involve the family elders answering questions about what they'd like their future to hold. For example, the older generation of the farm family should think seriously about what they'd like to do when their time isn't filled with farming. The answer to this and similar question will dictate how much money will be needed to meet those goals in retirement. From there, concrete strategies can be crafted which provide the older generation with needed resources while preserving the younger generation's ability to inherit and continue family business endeavors in the future.

The ability to retire securely while still passing on farm or business assets to children hinges on a range of factors. For one thing, diversification of assets is important. If all of a family's assets are tied up in illiquid property then it is often a challenge to have funds for retirement. In addition, illiquid assets can make it difficult to craft inheritance plans that allow the next generation to pay estate taxes without having to sell the very assets needed to continue to run the farm or business. No matter how complex one's situation, however, it is crucial for families not to bury their head in the sand. Coming up with solutions to these problems is exactly what professionals in these areas are trained to do.

Our New York estate planning lawyers ran across a Forbes article last week that began with the provocative claim that "70% of intergenerational wealth transfers fail." The story was discussing a new Williams Group study which examined the long-term effects of wealth transfers in 3,250 families. "Failure" in the study was characterized as situations where wealth was dissipated by heirs, often with the family assets becoming a source of disagreement and friction.

The researchers were quick to note that poor professional assistance was not to be blamed; estate planning attorneys, financial advisers, and tax experts were not found to play a role in the wealth transfer problems. In fact the researchers noted that "these professionals usually did well for their clients." Instead, the transfers that ended with problems were usually caused by poor family transition planning. In other words, the authors explained that "no one in the unsuccessful transferring families was preparing their heirs for the multiple kinds of responsibilities they would face when having to take over the reins."

To combat the problems that arise when large sums of wealth are given to unprepared children and grandchildren, it is important to identify long-term lessons and values that must pass on along with the assets. Some suggest identifying a "family mission" and a strategy to ensure that the family mission is carried out. The heirs should understand that mission and be aware of ways to honor it. For example, it is likely that the mission would include a range of philanthropic goals, family business development plans, and other targets. It is helpful for the heirs to have experience practicing those family duties well ahead of time, perhaps by assisting with a few family business matters or charity efforts.

The report suggests that at the center of all successful wealth transfers--beyond proper estate planning--is open and honest communication between families. Many wealthy seniors worry that there will be undesirable consequences if they talk openly with their children about their business, assets, and attitudes about wealth. There is a fear that if children know what is coming to them they will become lazy, take advantage of the situation, or begin feeling entitled to more. However, many experts have found that secrecy breeds problems down the road. This is true for all families regardless of their overall financial situation. It is almost always beneficial to have conversations about family assets and long-term legacies. The holiday season is perhaps a perfect time to do so.

Many local residents believe that crafting a New York estate plan only involves making of list of who will receive what at death and taking steps to ensure that taxes are saved in the process. While these issues are all important aspects of long-term planning, many others factors are also considered. Our New York estate planning lawyers tailor each plan uniquely to every new client, and no two community members are exactly the same. For example, many local families own and run businesses. It is incredibly important for these families to work on proper business succession planning when they consider their long-term preparations.

This weekend the Times Herald-Record published an article written by our New York estate planning attorney Bonnie Kraham, Esq, that explores the importance of business succession planning. Attorney Kraham explains how only a minority of family-owned business survive beyond the first generation. While 90% of all American businesses are family owned, 70% of them will end when the founding family member passes on. Only 15% of those current businesses will make it to a third generation. A large part of the declining rates and lack of longevity is the failure of many of these companies to have a business succession plan.

These plans take time, as the original entrepreneur should be around to help monitor the next generation for five to ten years while the process unfolds. A good rule of thumb is for the elder member to begin implementing the changes around the age of sixty. Of course the actual plan itself should be a collaborative process with input from the entrepreneur as well as the successors. There are many different variables to take into account, including the feelings, ambitions, and goals of all those involved. When done well the plan should also include input from a variety of professionals. Lawyers are necessary for the estate planning and agreement preparation, accountants should consider taxes, and financial advisors can determine the best investment strategies.

When it comes to actually transferring ownership, there are various methods that can be used. On one hand, gift tax rules allow couples to give a certain amount of stock in the company to children each year without paying a gift tax. In addition, there is a lifetime gift tax exclusion that each spouse can give up to $1 million. However, the most common method used to transfer ownership involves a "buy-sell agreement." These agreements require one party to buy and another to sell at a certain price and at a certain time--such as upon retirement, disability, or death.